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Strategies & Market Trends : Value Investing
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To: Paul Senior who wrote (4783)8/23/1998 1:16:00 AM
From: James Clarke  Read Replies (1) of 78998
 
<<Mike, Then what do you think it might take for someone to realize he/she cannot beat the market?>> [and thus should buy an index or mutual fund]?

This is not directed to Mike or Paul, but to the many individual investors I have listened to in the last couple years. I'm not sure where this is going to go, but let's try a top ten list. This is a brainstorm - if it turns out adequately I'll hit the post button.

The top ten reasons you would be better off in an index fund.
10 You own a stock whose 10-K or proxy you haven't read. Or even more, you don't know what a 10-K or proxy is.
9 You regularly buy stocks your broker pitches to you
8 You expect returns of more than 10% annually over the next 5 years
7 You have a credit card balance as well as an investment in stocks
6 You don't read the Wall Street Journal, Barrons nor IBD
5 You own a stock whose business you don't understand
4 The concepts "accounts receivable", "free cash flow" and "P/E" mean nothing to you.
3 You own any stock trading at more than 50x normalized earnings
2 You do not spend more than 10 hours researching any stock you put more than 2% of your net worth into
1 Your explanation of why you own any stock includes the phrase "Its gone up"

I am not directing that to most people on this thread, but my point is this. When you buy a stock, somebody is selling it to you. And when you sell a stock, somebody is buying it from you. Do you have any reason to believe you know more than them? I take the train to and from work for an hour every day and regularly sit next to "investors" who want market advice from me. It boggles my mind how many of these people have most of their net worth in stocks they picked themselves who fail most of the above tests, if not all of them. And then they laugh at me when I tell them I have sold just about everything.

Jim
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